91Ó°ÊÓ

Depreciation is an expense incurred on an asset that has become obsolete due to erosion and abrasion. An asset can be depreciated in various ways, which help in bringing the exact value of the asset at the time of sale.

Computing depreciation under the straight-line method

$\begin{array}{rcl}\text{Depreciation}\text{base}& =& \text{Cost}-\text{Salvage}\text{value}\\ & =& \$162,000-\$15,000\\ & =& \$147,000\\ & & \end{array}$

$\begin{array}{rcl}\text{Depreciation}& =& \frac{\text{Original}\text{cost}-\text{Salvage}\text{value}}{\text{Useful}\text{life}}\\ & =& \frac{\$147,000-\$0}{20}\\ & =& \$7,350\end{array}$

Computing depreciation under the units-of-output method

$\begin{array}{rcl}\text{Depreciation}& =& \frac{\text{Cost}×\text{Output}\text{in}\text{year}2017}{\text{Total} \text{production}}\\ & =& \frac{\$147,000×20,000}{84,000}\\ & =& \$35,000\end{array}$

Computing depreciation under the working hour method

$\begin{array}{rcl}\text{Depreciation}& =& \frac{\text{Cost}×\text{Working}\text{hours}\text{in}2017}{\text{Total}\text{working}\text{hours}}\\ & =& \frac{\$147,000×14,300}{42,000}\\ & =& \frac{\$2,102,100,000}{42,000}\\ & =& \$50,050\end{array}$

Computing depreciation under the sum of years digit method

$\begin{array}{rcl}\text{Depreciation}& =& \frac{\text{Cost}×\text{Estimated}\text{life}}{\frac{\text{Estimated}\text{life}\left(\text{Estimated}\text{life}+1\right)}{2}}\\ & =& \frac{\$147,000×20}{\frac{20\left(20+1\right)}{2}}\\ & =& \frac{\$2,940,000}{210}\\ & =& \$14,000\end{array}$

Computing depreciation under the double-declining balance method

$\begin{array}{rcl}\text{Depreciation}& =& \text{Original}\text{cost}×\text{Double}\text{declining}\text{depreciation}\text{rate}\\ & =& \$162,000×10\%\\ & =& \$16,200\end{array}$